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On the Schedule L attached to PKVI LP’s Form 1065 for 1990,
no amount “DUE TO AFFILIATED COMPANIES” was listed under “Other
liabilities” as of the end of that year. On its Form 1065 for
1991, PKVI LP reported imputed interest payments totaling
$100,661. There were no amounts separately identified as
interest payments made and/or imputed by PKVI LP to PK Ventures,
TBPC, or TPTC on its Form 1065 for 1991.
PKV&S claimed a bad debt expense of $1,712,151 on its
audited consolidated financial statements for the year ended
December 31, 1991. Of this amount, $1,312,151 was attributable
to the transfers that PK Ventures had made to PKVI LP in 1991 and
prior years. Note 3 to these financial statements offered the
following explanation for PKV&S’ claiming a bad debt expense with
respect to these transfers:
At December 31, 1990, the Company had made $1,096,250
of noninterest-bearing advances to PK Ventures I
Limited Partnership (LTD) in which it has a 1% general
partnership interest and a 29% limited partnership
interest. The Company made additional advances to LTD
in 1991 of $419,996, principally to fund operating
losses. Management of the Company believes that
recovery of its advances to and investment in LTD is
unlikely and, accordingly, has forgiven advances
amounting to $1,312,151 in 1991 and charged bad debts
expense. The Company also recorded losses under the
equity method of $129,095 in 1991 and $75,000 in 1990.
PKV&S claimed a $1,916,246 bad debt deduction on its
consolidated income tax return for 1991 for the cash transfers
that PK Ventures, TBPC, and TPTC had made to PKVI LP and for the
cash transfer that PK Ventures had made to Rose in connection
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